Chart of the Week: Alternatives investors bullish on UN SDGs

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More than 90% of investors in alternatives believe the UN Sustainable Development Goals (SDGs) will help the financial industry tackle pressing environmental and social issues, according to a survey.

Around a third of the investors “fully” shared this outlook, while the remainder (60%) “somewhat agreed,” according to the survey report.

A large majority (89%) of the investors indicated they thought the goals would help them measure more specific environmental, social or governance (ESG) outcomes, and 78% thought the SDGs would create new investment opportunities.

The survey was carried out by LGT Capital Partners, part of the Liechtenstein royal family’s banking and asset management group. The $60bn (€54bn) alternatives specialist surveyed more than 200 investors from 28 countries who invest in private equity, real estate, private debt, infrastructure and hedge funds.

“[I]nvestors are increasingly turning to the SDGs to make their ESG and sustainable investment activities more outcome-oriented,” said Tycho Sneyers, managing partner at LGT Capital Partners and board member of the Principles for Responsible Investment (PRI).

“The SDGs broaden the ESG scope from risk management to value creation in financial, natural and social capital.”

What are your expectations for the UN SDGs within the financial industry?

Source: LGT Capital Partners

According to the survey, many investors had already taken concrete steps “to help turn the promise of the SDGs into an investable reality” and a large proportion was planning to start integrating (40%) and reporting on (48%) them in the next two years.

Expectations-practice gap

LGT said the survey showed investors were “grappling” to find the right approach to incorporating the goals into their investment processes, with few (10%) assessing the impact of companies on the SDGs and even fewer (8%) reporting on this impact.

“These numbers are broadly in line with what we at LGT CP have seen in the market, where many investors are talking about the SDGs, and some are defining taxonomies or mapping their existing investments to the goals,” said the company.

“This is a start, but it is also clear that investors foresee hurdles to putting significant amounts of capital behind the goals.”

According to LGT, the survey showed that a significant proportion of investors (18%) already had impact or SDG-related allocation targets, and another 28% planned to have them in the next two years.

The share of investors willing to make such allocations increased significantly with experience, the report added.

“The most experienced ESG investors (seven years or more) in our sample are twice as likely, 32% versus 16%, to have such allocations as those who are new to ESG (up to one year),” it said.

On ESG

LGT Capital Partner’s survey also covered the topic of ESG integration, with the manager highlighting several findings, including that:

84% of investors believed integrating ESG factors into decision-making either had a neutral or positive effect on risk-adjusted returns; and

more than half of the surveyed investors (54%) said ESG was relevant to their decision-making and 47% said they had excluded managers on ESG grounds

Reputational risk and ethical objectives were the two most important drivers of ESG integration among the alternatives investors surveyed by LGT.

Looking specifically at infrastructure investors, a survey carried out by Global Infrastructure Hub and Edhec Infrastructure Institute found that 97% now believed ESG factors were important considerations in infrastructure investment decisions, up from 86% in 2016.

This was based on 36% of the surveyed investors agreeing with the statement that ESG was a “first order question, possibly at the expense of performance” in infrastructure investment, which was more than double the 17.2% reported in 2016, and 61% agreeing that ESG was “somewhat important but not an overriding consideration”.

The proportion of investors indicating “ESG is unimportant in comparison with missing financial objectives” dropped from 14% to 3%.

GI Hub CEO Marie Lam-Frendo said: “Infrastructure is a dynamic market, and the [survey] results can be used to help policy leaders around the world better understand the changing perceptions of investors in infrastructure. Importantly, the report highlights the significant growth in importance of ESG factors in the investment decision process.”

The survey captured responses from 315 infrastructure investors, compared with 186 in the previous survey. The biggest share of respondents (43%) were institutional investors like pension funds, sovereign wealth funds and insurers, with fund managers making up a third, commercial and multilateral development banks 13%, and consultants 11%.